Do Australian startups think too small? – Some Context.

There’s been a bit of press around the recently released “Silicon Beach Building momentum – A study of the Australian Startup Ecosystem” report.

While I think the authors have done an amazing job of collating the data, I don’t think the local press has grasped the content that well (Fairfax even managed to feature comments from a founder of a non-tech startup) so here’s my 2c.

Do Australian startups think too small? The answer is generally “yes” but there’s some context missing that is essential for understanding that answer.

Let’s look at a key part of the report:

“The data indicates that as a startup ecosystem grows,
the appetite for risk also increases. For example, from their bases in larger ecosystems, Silicon Valley entrepreneurs tackle new markets 15% more often than Australian entrepreneurs, while New York entrepreneurs pursue new markets 12% more often.

In contrast, Australian entrepreneurs are not as ambitious and tend to tackle much smaller markets. Australian entrepreneurs tackle niche markets 14% more often than entrepreneurs in Silicon Valley and 10% more often than New York entrepreneurs.”

Let’s dissect this a bit.

First of all the assumption is that new markets and niche markets are mutually exclusive and that the former implies some level of ambition over the latter.  I don’t think this is accurate.

Secondly, it’s not clear what the 10% / 12%  / 14% / 15% actually mean. E.g. for niche markets do they mean AU startups focus on them14% more than the base US number – e.g. if  the US number is 50% does that mean AU startups focus on them 57% of the time (15% x 50%) or do they mean AU startups focus on them 64% (50% + 14%) of the time?

Either way I’d hardly call that earth-shatteringly different. In fact, you may even argue that even if it was, the result is favourable to AU startups, not their US cousins. I mean, we’ve been telling startups for years that they need to focus on small, winnable niches to start off – then expand. So maybe this figure shows AU founders are actually smarter in how they think about their businesses than US founders.

My view on the report is this. We have a growing industry, which is doing exceptionally well for its level of maturity.

The vast majority of startups are yet to come even close to scale stage so it makes sense for them to be focused on small niches. I don’t think this means that AU founders aren’t thinking about the big game – just that many are focused on the small one for now. Fair enough. Go ask them in person, as I have on many occasions, about their global aspirations and you’ll hear enough to be convinced that while it’s not excellent, it’s certainly not all doom and gloom.

To be clear, that doesn’t mean that we’ve won the war against our historical limitations just yet – but we are doing better all the time particularly if you focus only on founders who are completely dedicated to their startup (that’s another article, but I can tell you with some certainty that the 1000+ teams who responded to the survey are not all in that position)

Before we go any further, some of you may be asking what I mean by historical limitations. Let me explain.

Startup founders everywhere are a smart lot, particularly those who are dedicated to their business and hope to receive funding to scale at some stage. They adapt to the prevailing conditions of their environment. In Australia, investable capital and investor experience generally means that startups must be constrained in their thinking in order to fit within the paradigm of what’s achievable according to the investment community.

In the US, this problem doesn’t exist. Capital is not the limiting factor. Good founders working on scalable solutions to problems in big markets are the limiting factor. As such there’s no need for US-based founders to be constrained in their thinking in the same way that AU founders are.  In fact the opposite is almost true; no matter how big the idea is, if you can derisk yourself enough to be an attractive investment target then you can raise as much money as needed.

The good news is that this is changing before our eyes. As more money comes online, as more founders gain experience both here and overseas and share their experiences with other founders – the visions will become bigger and bigger.

Don’t get me wrong, there will always be founders focused on niche markets that have no desire to move beyond that – there’s nothing wrong with that– but what I’m seeing (and believe I will continue to see more and more of) are more founders trying to be genuinely disruptive to global markets

Numbers are funny things. So are words. Both rely heavily on context. I think Startup Genome / Pollenizer / Deloitte and From Little Things should be commended for their effort in trying to benchmark AU startups against their global compatriots  but some more context around the results (and perhaps even raw anonymised data for the community to play with) would certainly help us gain a better understanding of the results of that effort.


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